Cap & Share
A fair way to cut greenhouse emissions
May, 2008
€5 /£4
The Foundation for the Economics of Sustainability
Continued growth of greenhouse gas
emissions for just another decade practically
eliminates the possibility of near-term return
of atmospheric composition beneath the
tipping level for catastrophic effects.
If humanity wishes to preserve a planet
similar to that on which civilization developed
and to which life on Earth is adapted,
paleoclimate evidence and ongoing climate
change suggest that CO2 be reduced from its
current 385 ppm to at most 350 ppm.
Remaining fossil fuel reserves should not be
exploited without a plan for retrieval and
disposal of resulting atmospheric CO2.
James Hansen et al, Target Atmospheric CO2 : Where Should
Humanity Aim? April 2008 (http://arxiv.org/pdf/0804.1126)
Since the above was written, the concentration has risen to
387 ppm.
“
”
Cap & Share
A fair way to cut greenhouse emissions
Executive summary
Cap and Share was developed to meet the twin challenges presented by climate change and the
peak in the world supply of easily-extracted oil. It is a variant of cap and trade and would limit the use
of coal, gas and oil. It can, however, be used to share the benefits from using any scarce natural
resource. It works by placing a cap on the use of the scarce resource and charging the users whatever
price is necessary to balance their demand with the capped supply. The receipts from the resource users
are then shared on an equitable basis amongst all those with an interest in the resource involved.
This paper deals with the use of C&S to deal with oil peak and climate change. If it were to play that
role globally, C&S would cap world fossil fuel greenhouse emissions and then tighten the cap year
by year at a faster rate than oil production was decreasing. This would make the emissions tonnage
set by the cap a scarcer resource than the oil supply. As a result, the whole of the extra amount that
users would have been forced to pay the producers for supplies of the scarce oil would be captured
in the price paid for C&S emissions permits.
The captured money would then be shared amongst those with a claim on the capped scarce
resource and, since that resource is the limited capacity of the sky to act as an emissions dump,
everyone on Earth would have an equal claim and thus get an equal share. The emissions permits
would also be scarcer than the supply of coal and gas, so C&S would capture the extra that people
were prepared to pay to use them too.. This extra is what economists call the “scarcity rent”. After some
deductions which are explained in this paper, C&S would then share the total rent from the three fossil
fuels amongst everyone on the planet. 3
Drastic cuts in the world's greenhouse gas emissions are required to
avoid a climate catastrophe. A worldwide agreement to secure such
cuts will be impossible to negotiate unless both the pain and the
benefits are shared equitably around the world. Moreover, the sharing
system must be robust enough to ensure that the cuts agreed actually
happen. Cap & Share is both robust and equitable. It has the additional
advantage that, until it is adopted globally, it can be used by individual
countries to make sure their emissions take a downward path.
Executive summary continued
The first paragraph mentioned charging resource users for their use of a scarce resource. Under Cap
and Share, these charges are collected indirectly. The emissions permits are not sold to fossil fuel users
– that would be difficult because there are billions of these. Instead, they are sold “upstream” to
companies introducing fossil fuels to the global economy. As only a small number of firms produce
most of the fossil fuel used in the world, this makes C&S easy to administer. Each producer is required
to acquire enough permits to cover the eventual emissions from the fossil fuels they extract.
Of course, the fuel firms have to add the cost of the permits to their prices and this puts up the cost
of everything sold because all goods and services have an energy content. However, anyone who
uses, directly or indirectly, rather less energy than is produced from the fuel burned when their share
of each year's capped emissions is released is likely to receive more money from selling their permits
than their cost of living goes up. As a majority of people in the world manage on less than the
average amount of energy used per person, most people would gain financially from the use of C&S.
This would make C&S popular and therefore politically robust.
The paper argues that C&S needs to be adopted urgently not just for climate reasons but because
the scarcity rent being captured by fossil fuel producers is concentrating global wealth in a way that
threatens to collapse the world economy. The payment of scarcity rent is already causing severe
hardship for millions of poorer people around the world.
The paper describes the way C&S could be used as the operating system for the fossil fuel part of a global
climate agreement. Other systems are going to be needed to enhance greenhouse gas sinks and conserve
the stocks of carbon held in soils and plants. The various options that could be incorporated into the design
of C&S are described and the paper looks at the changes that would be required in other systems, such
as the money-creation system, for C&S to work well. The paper ends with an account of the steps being
taken to get C&S adopted internationally, and stresses that before this can happen, the concept needs
to gain massive public support.
4
Abbreviations
AEA .............................Atomic Energy Authority
EAT................................Earth Atmospheric Trust
ebcu.............................emissions backed currency unit
EIA.................................Energy Information Administration
ETS................................Emissions Trading Scheme
GAT...............................Global Atmosphere Trust
GWP.............................Gross World Product.
IEA.................................International Energy Agency
IRC.................................International Red Cross
Mbd.............................million barrels per day
NASA...........................National Aeronautics and Space Administration
PAP...............................Pollution Authorisation Permit
UNDP..........................United Nations' Development Programme
UNFCCC....................UN Framework Convention on Climate Change
Overview 1
Cap and Share seeks to provide a simple, workable and ethical economic framework for dealing with
the climate crisis. It is based on the belief that every human being has a right to an equal share of
the fees that fossil fuel users would be prepared to pay for the right to discharge greenhouse gases
into the global atmosphere.
Under C&S, global emissions would be capped at their current level and then brought down rapidly year
by year. Each year, the tonnage of emissions that the world community decided that it could risk releasing
over the following twelve months would be shared equally amongst the Earth's entire adult population.
Each of us would actually receive a “fossil fuel pollution authorisation permit” (PAP) conveying the right
to our individual share of that year's global emissions and making us responsible for it.
The important thing to note about these permits is that they would not ration our personal energy
use. Instead, they would permit fossil fuel production. They would be valid for a year, during which
people would sell them to financial intermediaries such as banks and post offices, who, in turn,
would sell them on to oil, coal and gas producers. These producers would need to acquire enough
permits to cover the carbon dioxide emissions from every tonne of fossil fuel they sold and
international inspectors would check to ensure they did.
Cap and Share is clearly equitable and, arguably, fairer than any other practical method of sharing out
rights to emit around the world. It would also be robust because, as the tonnage of emissions being
distributed was reduced year by year, the market value of each person's permit allocation would
increase, ensuring that poorer people received an income from the sale of their permits which enabled
them to buy food and fuel as these became increasingly expensive. Since the reductions required in
fossil fuel use to avert a climate catastrophe are so rapid and deep, adopting some other greenhouse
gas control system that failed to protect the poor would cause serious injustice and provoke massive
opposition. C&S provides an orderly way of managing the transition from fossil fuels to alternative
energy sources with the market setting the price at which the right to emit is sold.
5
How Cap and Share would work2
1 The Cap If C&S was adopted internationally, a Global Atmosphere Trust would cap (limit) global
greenhouse gas emissions at their present level. Then, using the best scientific advice, it would
tighten the cap each year so that emissions eventually fell to a level at which the the atmospheric
concentration of greenhouse gases was judged to be consistent with a stable climate.
2 The Share Every year, national climate protection trusts would share out whatever emissions
tonnage had been allocated to them on the basis of their country's population. They would
give an equal amount of pollution authorisation permits to every adult resident in their country.
3 The Sale When people received their pollution authorisation permits (PAPs), they could take
them to a bank, post office or other financial institution and sell them at the current market rate,
exactly as if they were foreign currency notes. On the other hand, they might choose not to
authorise the release of the emissions the permits conveyed. In this case, they could withhold
their permits and thus reduce the world's emissions that year by their share.
This annual distribution of fossil fuel PAPs would provide the recipients who sold them with a
supplementary income to offset the effects of the rising cost of fossil fuels. A tighter cap would
result in greater competition for PAPs and a higher sale price for them. Indeed, since a majority
of the world's population use little energy and would thus get more for their PAPs than their cost
of living went up, there would be pressure on the Global Atmosphere Trust to accelerate the rate
at which it was tightening the cap.6
1 THE CAP
The Global Atmosphere
Trust sets each year’s
emissions at a level
highly likely to stabilise
the climate.
THE SHARE
National climate protection
trusts distribute Pollution
Authorisation Permits (PAPs)
to every adult resident.
THE ENFORCEMENT
Inspectors check that producers have
bought enough permits to cover all their
output. The used permits are cancelled.
THE BUY
Fossil fuel producing companies
buy enough permits to cover
the eventual emissions from the
oil, gas and coal that they sell.
THE SALE
Recipients either sell
their permits via banks and
post offices or destroy them.
2
3 4
5
ONCE
A YEAR
How Cap and Share would work continued 2
4 The Buy A well-defined and relatively small number of companies introduce the majority of
coal, oil and gas into the world economy. These firms would need to acquire enough PAPs to
cover the eventual emissions from the fuels they sold and competition between them for the
limited supply would set the PAP price. Only these fossil energy suppliers would need to buy
permits from the banks. Fuel users, whether families, companies or utilities, would never need
them to purchase fuel.
5 The Enforcement An inspectorate would be set up by the Global Atmosphere Trust to verify
that the quantity of fossil fuel each company produced was in line with the number of PAPs it
had bought. Unless there was serious undiscovered fraud, the world would be certain to achieve
the emissions target the Trust had set.. An important feature of C&S is that policing it would only
involve fossil-fuel producing companies. Other companies and individuals would not be affected.
7
Parallel proposals from the US…
A similar system to Cap and Share called Cap and Dividend has been proposed in the United
States. Under Cap and Dividend, the Sky Trust, the organisation responsible for setting the cap
and issuing the permits, would not allocate an emissions tonnage to each individual and send
them a PAP for that amount. Instead, it would auction the permits to the fossil fuel producers and
then share out the money it received on an equal per capita basis, sending a cheque or some
other form of payment to each person. This system is likely to be slightly cheaper to operate than
C&S because the amount charged by the financial intermediaries for handling or cashing a
cheque or processing an electronic payment directly into someone's account might well be less
than the charge made for cashing an instrument whose value would change day by day
according to market demand. On the other hand, individuals would be far less involved. They
would just get the money without having to think about where it came from and they would
not have the option of reducing the world's emissions by tearing up their PAP. See
http://www.capanddividend.org.
…and from Oxford
Kyoto2 is another system with similarities to Cap & Share. It was developed by Oliver Tickell, an
Oxford-based journalist and campaigner on health and environmental issues. Besides placing an
upstream cap on fossil fuel emissions it would also cap those from cement factories, gases such
as the HFCs and HCFCs, and high-flying aircraft. The cap would be tightened sufficiently rapidly
to return the atmospheric concentration to 350ppm CO2-equivalent by 2050.
It differs from C&S in that all the permits for the capped emissions would be sold by global
auction and the revenue used entirely for tackling "the causes and consequences of climate
change". None would go to people as a right. Tickell estimates that the auction would provide
around $1 trillion per year (approximately the level of global military spending) to be invested in
renewable energy, energy efficiency, energy research, reducing emissions from agriculture,
reversing deforestation and rebuilding degraded native ecosystems, providing emergency aid
following climate-related disasters, and financing adaptation to the climate change that is already
inevitable. See http://www.kyoto2.org
The details, step by step3
3.1 Setting the annual cap
The determination of the specific rate at which emissions should be reduced is beyond the scope of
this paper. However, what can be said is that the Global Atmosphere Trust (GAT) would need to be
able to make its capping decisions purely on the best scientific advice on the pace that warming was
taking place, on the risks that this represented and on the reduction necessary to avert those risks. If
it regarded the risk of a runaway warming developing as unacceptably high, the GAT should be able
to ignore the social and economic disruption that a rapid contraction in fossil energy could entail. Its
trustees would have to be appointed in a way which gave them this level of detachment.
Getting such a trust into operation with full international co-operation presents a major challenge. However,
a factor which might ease that process would be the recognition that the world's production of crude oil
has been in a slow decline since May 2005. See Graph 1 on p10. As a result, its price is likely to rise well
above current levels and, if no action is taken, the producers will make greater profits than they are already
doing from the 'scarcity rent'. The total amount of scarcity rent they have received since oil prices began
their climb has been substantial. Most currently-active oilfields were developed on the assumption that
the price of oil would be about $20 a barrel. If one increases that figure to $30 to allow for inflation, more
than half of the $1,975 billion paid for oil last year was actually scarcity rent. The amount involved, around
$1,000 billion, was roughly 2% of gross world product. To put this into context, overseas aid was about
$100 billion in 20071, about a tenth of the rent the fossil fuel producers received..
The essence of C&S is that it would capture this scarcity rent by
making the pollution authorisation permits (PAPs) it issues scarcer
than the supply of fossil fuel. As a result, the scarcity rent would be
paid to everyone for their permits rather going to the producers. A
delay in negotiating an international climate treaty that involves an
effective emissions cap and the establishment of a GAT will
therefore mean that huge sums in scarcity rent will continue to be
paid by fossil fuel users to increase the producers' profits. This
poses a threat to the world economy. The last time that oil prices
gave the Gulf producers an equivalent surplus was in the 1970s. As
The Economist puts itii: “The Gulf's money was a disaster for Latin
America, for, recycled through Western banks, it caused a decadelong
debt crisis. The Gulf itself suffered by inflicting stagflation on
the West, thus causing a 20-year-long slump in oil prices.” This
time “The sheer quantity of cash is hard to manage. It is too
plentiful for small economies to spend, and has therefore added to
the glut of global saving that is in part responsible for the financial
excesses of recent years. Indeed, some economists see an analogy
with the 1970s. Gulf petrodollars have been recycled not to improvident governments in Latin America
but instead to improvident homebuyers in the uncreditworthy fringes of America.”
8
When I arrived at the
European Commission
in 2004, a barrel of oil
cost 52 dollars. It has
doubled in three
years. We can't rule
out that in 2011 it will
be at 200 dollars,
Andris Piebalgs, EU Energy
Commissioner, on March 3rd,
2008 when oil was $104.95 a
barrel.
“
”
The details continued 3
Lending to uncreditworthy homebuyers at least put money into ordinary people's hands. Unless the
huge sums being paid in scarcity rent are recycled properly, the world economy will go into a decline.
The danger is that consumer spending will fall as money is diverted to pay for energy. This will reduce
demand and cause business investment to decline too as firms find they have have surplus capacity.
This could mean that there were no commercial takers for the loans being offered by the funds
attempting to place the scarcity rents and unless governments borrowed to invest themselves, the
fossil fuel producers would be left with no profitable ways of injecting their money back into their
customers' economies. A depression would result and fossil fuel prices could fall considerably.
Even if the scarcity-rent recipients were able to re-inject their money in the fuel users' economies,
much of it might be spent on real estate and blue chip shares. If this happened, very little of the money
involved would find its way back to ordinary people, something which is vital if large numbers are not
to be progressively impoverished or driven out of the energy market altogether. Money must complete
a circular flow if the trade it facilitates is to be sustainable. Put another way, anyone paying over money
to buy energy must somehow get that money back if he or she is to be able to buy energy again. C&S
would ensure that ordinary people got it back. Other methods of distributing the scarcity rent might not.
9
Year Oil
consumption
(mbd)
Source: BP
Statistical
Review of World
Energy
Average oil
price
($/barrel)
http://www.inflati
ondata.com/inflat
ion/inflation_rate/
Historical_Oil_Pric
es_Table.asp
Total
amount
paid for oil
($ bn)
Gross world product
($1000 bn)
http://www.imf.org/external/pub
s/ft/weo/2007/02/weodata/we
orept.aspx?sy=1980&ey=2008&
scsm=1&ssd=1&sort=country&d
s=.&br=1&pr1.x=75&pr1.y=13&c
=001&s=NGDPD%2CNID_NGDP&
grp=1&a=1
Price
paid for
oil as %
of GWP
1974 55.5 9.35 189 7.5 2.5
1980 61.7 37.42 843 11.8 7.1
1990 66.8 23.19 565 22.8 2.5
1999 75.5 16.56 456 30.9 1.5
2000 76.3 27.39 763 31.8 2.4
2001 76.8 23.00 645 31.6 2.1
2002 77.7 22.81 647 32.8 2.0
2003 79.2 27.69 800 36.9 2.2
2004 81.9 37.66 1126 41.5 2.7
2005 83.1 50.04 1518 44.7 3.4
2006 83.7 58.30 1781 48.2 3.7
2007 84.3 (est) 64.2 1975 53.4 3.7
Table 1: The share of world output going to pay for oil
The proportion of world output going to pay for oil is increasing steadily, shifting the balance of financial power
and giving the oil exporting countries large amounts of capital to invest in the consumer countries. In 2007, oil
consumers were paying $4 billion to $5 billion more for crude oil every day than they did just five years previously.
The 2008 figure is likely to be very much larger. Source: Calculations by Feasta
The details continued3
The unsustainability of failing to return the scarcity rent to the people who paid it has become apparent
since oil prices began to rise because some poorer people have ceased to be able to buy adequate
amounts of food and fuel. The president of the World Bank, Robert Zoellick, warned in April 2008 of
100 million people being pushed deeper into poverty because of food price rises which were due,
at least in part, to the higher price of energy.
The oil peak therefore makes it urgent to set up a trust to cap the world's fossil fuel use and then
reduce consumption more rapidly than the rate at which oil production falls. This would achieve two
turning points. One is that, rather than increasing, the world's greenhouse emissions would actually
start coming down. The other is that the poor would be compensated for the price rises taking place.
Coupling fossil fuel depletion with climate change makes it apparent that the world has a simple
choice. It can either
1. Begin reducing fossil fuel use rapidly now and have some hope of avoiding a runaway warming.
This course would leave larger stocks of fossil fuel for use in the future – but only after emissions
had fallen to well under the capacity of the sinks to take them in, or,
2. Wait twenty years and then find that resource depletion (see following panel) forces a similar
drop in fossil fuel energy anyway. By that time, too, climate change is almost certain to have
passed the point of no return. Positive feedbacks will have developed which are likely to have
set off a period of rapid warming which humanity would be unable to reverse, no matter how
rapidly emissions were reduced. In addition, severe weather events can be expected to be doing
enormous damage.
10
Millionbarrelsperday
1937 1947 1957 19771967 1987 20071997
90
80
70
60
50
40
30
20
10
0
All oil-type liquids
Conventional crude
Graph 1: World crude oil production seems to have begun a gentle decline after peaking in
May 2005. This graph from the December 2007 issue of Oilwatch Monthly is drawn from
data supplied by the US Energy Information Administration. Total oil production is still rising
however because because of the increasing supplies of liquids from unconventional sources,
such as the very light liquid that is produced as a by-product of natural gas production.
11
Millionbarrelsperday
1980 1990 2000 20202010 2030
120
100
80
60
40
20
0
Hedberg scenario (2% decline)
Robelius scenario (8% decline)
Availability of fossil fuels may decline sharply soon
If Cap and Share is to work, the Global Atmosphere Trust not only has to ensure that it
tightens the cap sufficiently rapidly to avert a climate crisis. It also has to ensure that it
always issues permits for fewer emissions than the fossil fuel producers require for the
amount of fuel they would like to sell. Only that way will the permits capture the scarcity
rent. The rate at which world fossil fuel production declines as a result of resource depletion
will therefore determine the minimum rate at which the GAT tightens the cap. Recent studies
show that this rate might be surprisingly rapid.
World oil production is probably as high now as it will ever be and output may begin to
decline rapidly within the next two or three years. Rembrandt Koppelaar, the editor of
Oilwatch Monthly, saysiii that the output from existing oilfields is declining at 4.5% but that
the overall rate of decline could be anywhere between 8% beginning almost immediately
and 2% starting in 2018. His projections are shown in Graph 2. He based the 2% figure on
figures for “reserve growth” as a result of improvements in ways of getting oil out of the
ground released after a by-invitation-only conference of 75 international oil industry figures
at Hedberg near Colorado Springs in the US in November 2006. The 8% decline figure is
based on the doctoral thesis of Frederik Robelius of Utrecht University who looked at the
rate that output from the 507 giant oilfields which supplied over 60% of world demand in
2005 was likely to decline in future.
Graph 2: Since there has been a range of predictions when peak oil will occur, it is scarcely
surprising that there is a range of predictions for the rate at which oil output will decline and
when the decline will begin. This graph by Rembrandt Koppelaar spans the possibilities.
World gas supplies are also nearing their peak. The world expert in this area, Jean Laherrere,
expects world production to peak around 2025. However, he points out that there is no global
market for gas because of the high cost of transport. There is, instead, a series of regional
markets. Shortages could occur in two of these, North America and Europe, before oil shortages
begin, he toldiv a conference in Groningen in November 2006. Graph 3 shows how rapid the
decline is might be, starting any time from now on. The rate of decline is about 5%.
The timing and rate of decline of coal output is less clear. For years, the consensus was
that there was abundant coal but in April 2007, Werner Zittel and Jorg Schindler released a
report Coal: Resources and Future Production which concluded that the world's coal reserves
had been over-estimated and that global coal production was likely to peak around 2025
at 30 percent above the present level. It would then decline and from 2060 onwards, the
fall would be about 2% a year. However, as with oil and gas, the net amount of energy
the coal would be able to provide would decline even faster than the actual output because
of the increased effort required by the mining process.
We cannot therefore be certain about the rate at which world fossil fuel output will decline as
a result of resource depletion. However, two things are clear. One is that because there is
already an excessive amount of greenhouse gases in the atmosphere, the eventual decline
12
Trillioncubicfeetperyear
1950 1960 1970 19901980 2000 2010 2020 20302006
40
35
30
25
20
15
10
5
0
Europe
US & Canada
Graph 3: Gas supplies to the European and North American markets are expected to
decline rapidly in the near future and it will be expensive to bring supplies in from
elsewhere. Europe has been looking to Russia for its supplies despite the political
price to be paid. Production in the Former Soviet Union as a whole is expected to
begin to decline around 2020. The data are from Jean Laherrere.
Source: http://europe.theoildrum.com/story/2006/11/27/61031/618#more.
will come too late to prevent a climate crisis. The other is that the supply of oil will not be able
to keep pace with demand from 2009 or 2010 onwards if the world economy stays buoyant.
As Nobuo Tanaka, the Executive Director of the International Energy Agency (IEA), told a
conferencev in London in October 2007: “Despite five years of high oil prices, market tightness
will actually increase from 2009. New capacity additions will not keep up with declines at
current fields and the projected increase in demand.” The IEA also said on its World Energy
Outlook 2007 that it expects “An abrupt escalation of oil prices after 2015 as a result of a
global supply crisis.” It continues “…it is very uncertain whether new oil production in the period
to 2015 will be enough to compensate for the natural falloff in output from existing oil fields
and keep pace with the projected increase in demand.” In view of this, the establishment of
a trust to share the scarcity rent is extremely urgent.
3.2 The share
The basic choice about how to share the right to emit around the
world is straightforward once the decision to cap has been made.
Any form of capping delivers a scarcity rent to whoever is given the
rights to the resource being restricted. If a international climate
agreement involving a cap was put into place (and it is hard to see
how there could be an effective climate agreement without one),
there would only be two ways to dispose of the rights to the rents
arising from that cap. They could be allocated either to
governments or to people.
Since the UN Framework Convention on Climate Change (UNFCCC)
process is run by governments, the likelihood is that they will
allocate the emissions rights and thus the rents to themselves. They
could devise a formula to share them according to their
populations, or their current emissions levels, or some hybrid between the two, such as that suggested
by Contraction and Convergencevi. Responsibility for historic emissions could be brought into the
formula too. Once the deal was done and countries knew their allocations, they would have to decide
what to do with the tonnage they had received. They could follow the EU Emissions Trading Scheme
model and give the emissions rights to big energy users. Or they could auction them and spend the
money in various ways, even including distributing some of it to their populations.
The drawbacks to allocating emissions rights to governments are:
● It might be harder for nations to agree a formula for dividing the rights country by country rather than
person by person. For example, countries with a big mining or heavy industrial sector might feel that
they required a greater emissions tonnage than those with similar populations but with economies
based on agriculture or the service sector. Such feelings would be a mistake because, for the most
part, the extra fuel would be being used by heavy industries located in their territories on behalf of
13
The possibility of
$150-$200 per barrel
seems increasingly
likely over the next
six to 24 months,
Arjun Murti of the investment
bank Goldman Sachs on
May 6th, 2008 when oil was
$122.25 a barrel.
“
”
The details continued3
the people in the rest of the world who buy their goods. To the extent this was the case, the necessary
emissions rights should be bought in from the rest of the world. But would governments accept this
and be prepared to accept the same per capita allocation as other countries? Similarly, countries with
cold climates might feel that they were entitled to a greater emissions allocation than those with
warmer ones which, in any case, had a greater biomass or solar energy potential. Warmer countries
might want an extra allocation for air-conditioning and the de-salination of their water supplies .
● Huge sums of money would be involved if the emissions tonnage was auctioned. Governments
would have to redistribute this fairly if the result was to be comparable with C&S. In particular, they
would have to see that the interests of the least well off were protected as the prices of energy,
food and materials rose in relation to most people's wages. However, if the flows of oil money
are any guide, many governments would fail to do this. Oil-rich countries have been shown to
do far less to help the poor than countries without resources. According to Michael Ross of the
University of Californiaviii, oil and mineral states fare worse than resource-poor countries on child
mortality and nutrition. They have lower literacy and school-enrollment rates and do relatively
worse on measures like the UNDP's Human Development Index. This is said to be because their
ruling elites have no need of the poor as a source of tax revenue and therefore have no incentive
to spend on projects which would improve incomes and thus the national tax base. Moreover,
the flow of mineral wealth to governments has not been good for democracy and Ross has
shown how states with such flows have experienced more insurrections and coups. In addition,
if governments collected the permit revenue, the risks of corruption would be huge and the
development path that countries took would be almost certain to be distorted, since big, top-down
projects would tend to be favoured over those at a family or community level.
By contrast, the direct distribution of a share of the scarcity rent to each adult as proposed by C&S
would create a much better balance between rulers and the ruled. The other advantages of individual
entitlements include:
● The less-well off would be automatically protected against the effects of higher energy prices
● Purchasing power would get to people and places that would otherwise be hard to reach. The
urban-rural divide would be narrowed.
● People would receive, as a right rather than a government hand-out, the resources that they need
if they are to adapt to a low-carbon world. They would be able to borrow against their annual
income from the sale of their emissions rights for projects which would produce or save energy.
Local-level projects would be easier to develop and finance.
● Governments would benefit from higher tax revenues produced by the extra economic activity
that the distribution of the scarcity rents would generate.
● The scope for corruption would be greatly reduced.
Despite all these advantages, it is likely to be very difficult to get governments to agree that emissions
should be capped by an autonomous international organisation and that the permits it issues, or the
revenue from their sale, should be distributed by autonomous national organisations to every adult
in their jurisdictions. In part this opposition would be because such an agreement would restrict a
government's powers by making the independent management of a commons on behalf of present
14
The details continued 3
and future human generations and of other species equivalent to having an independent judicial
system to safeguard legal rights. Yet isn't this what is required? In a healthy society the judicial system
is kept apart from the government decision-making so that governments and politicians can be bound
by the rule of law. Should not the same independent status be given to the people and organisations
charged with maintaining the integrity of global and national ecological systems?
If C&S was nevertheless adopted as the world framework for tackling fossil fuel depletion and climate
change, it would share out three things:
1. the scarcity rent arising because emissions rights have been restricted would be shared between
everyone in the world
2. the scarcity rent arising as a result of fossil fuel depletion would be shared between fossil fuel
producers and the rest of the world, and
3. fossil energy use would be shared between this generation and later ones.
We will look at these in turn.
3.2.1 Sharing emissions rights between people
As we've discussed, the Global Atmosphere Trust would set the cap and supervise the international
distribution of the Pollution Authorisation Permits, PAPs. It is envisaged that each country would set up a
statutory climate protection trust at arm's length from its government to distribute the permits. Each PAP
would bear the beneficiary's name, just as polling cards do in many countries, and the climate protection
trusts would use electoral registers, social welfare and tax records to compile the list of names and
addresses to which the permits were to be sent. The draft lists would then be published so that people
could check that their names were there. Governments would want to see as many people on the
distribution list as possible because that would bring more permits into their countries and that would save,
or earn, foreign exchange. It would also entitle their treasuries to extra payments, as we'll explain later.
Basing the distribution list on electoral and tax records would mean that only adults got PAPs but that they
would receive a higher emissions tonnage than if children got them too. Confining the distribution to adults
avoids a lot of administrative difficulties, removes opportunities for fraud (few young children have
worthwhile photographic identity documents) and safeguards C&S from the charge that it would encourage
people to have more children just to collect the income from the entitlements each birth would bring.
Possible add-on 1. - The Transition Fund
Although distributing emissions rights on an equal per adult basis is obviously equitable, is it fair? Not
all people are on an equal footing when it comes to facing the consequences of climate change or
adapting to a very low level of fossil energy use. Fairness surely requires that consideration be given
to each area's circumstances and, to enable C&S to do this, it is proposed that the Global Atmosphere
Trust should retain a proportion of each person's share each year. It would sell the retained emissions
tonnage itself and put the proceeds into a Transition Fund to be allocated to countries whose
governments had proved that some or all of their citizens were much more seriously disadvantaged
by emissions restrictions or the effects of climate change than people in other countries.
15
The details continued3
The Transition Fund would not be used for poverty relief or to compensate for historic injustices. It
would all go to capital projects. For example, countries might receive grants to improve the energy
efficiency of their buildings and transport systems, or to take precautions against the increasing storms,
drought or rising sea levels brought about by climate change. Or they might qualify because they had
a greater need than other countries to enable their industries to adopt new, low-energy technologies.
Both rich and poor countries would be able to apply.
It would only be possible to retain a small percentage of any year's emissions permits to benefit the
Transition Fund. The following calculation indicates why. About 20% of the world's annual output is
used for investment purposes and since machinery manufacture and construction projects are energy
intensive, capital spending probably accounts for 40% of world fossil energy use and hence 40% of
global emissions. Assuming this figure is broadly correct, how much of the 40% should be allocated
to the Transition Fund for hardship cases? The answer is probably that only about an eighth of the
40% or 5% of the total global emissions could go to the fund since every household, firm and
government in the world is also going to want to use energy for capital projects to adapt to the new
low-carbon conditions.
Although the division of the Transition Fund between countries is likely to be contentious, a major
advantage of having the Fund in the C&S design is that the international community would be able
to agree that PAPs should be issued and start the annual distributions without having first settled how
the Transition Fund should be shared out. The money from the sale of the emissions tonnage the Fund
withheld could be kept in a bank account until an agreement on how it should be divided up
emerged. This would be far better than allowing a failure to agree on the division of emissions rights
between countries to delay the signing of an adequate international treaty for several years, which
may well be the outcome under the present each-country-fighting-its-corner-against-all-the-others
arrangement. Moreover, since an international decision that C&S was to come into effect in two or
three years would produce massive changes, it would scarcely matter if the share-out of the Transition
Fund was delayed for some time.
Possible add-on 2. - Collective distribution
Distributing PAPs to individual adults is very much a Western approach and some non-Western
societies operate on a more collective or communal basis than is usual in most of the fossil-energyintensive
world. However, it should also be said that the nation state is also a Western concept and,
just because the distribution to individuals might be inappropriate in some places, that does not
mean that the emissions rights should go to a national government instead. A much better solution
would be for the Global Atmosphere Trust to issue guidelines on the circumstances in which
distributions could be made to groups such as communities and tribes and for the national climate
protection trusts to follow these where they, and the communities involved, thought appropriate. For
most of the world, though, distributing PAPS to individuals would be the norm.
16
The details continued 3
Possible add-ons 3 & 4. - Community response and the Children's Fund
The GAT should not oblige the national climate protection trusts to distribute all the remaining tonnage to
individuals. Because not all energy-saving-and-supply problems can be solved by changing prices and
ensuring that people have more money in their pockets, the national trusts should be free to consider giving
out perhaps 10% of each individual's allocation in a form which prevented it being sold by the recipient.
Instead, every local area could have a choice of collective projects intended to develop local energy supplies
or to reduce fossil energy use and the projects would compete with each other to persuade people to give
them the special permits to sell to raise enough funding to go ahead. Similarly, a national trust could decide
that a proportion of the tonnage that would have been distributed to children had they been included in
the division should be distributed in a form in which it could only be invested by their parents, through
special Childrens' Funds, in ways likely to benefit all children when they became adults themselves.
3.2.2 Sharing the profits from the scarcity of fossil fuels between
producer and consumer
We've already noted that Cap and Share is, first and foremost, a mechanism for distributing the benefits
that can be gained from using fossil energy fairly around the world. If C&S or a similar system is not
introduced and the distribution of the diminishing supply of fossil energy is left to the market, the prices
of all three fuels will increase as a result of fierce competition. The increases produced by this competition
will alter the division of the benefits of using fuel between the producers and the users, with some of
the people who used fossil fuel previously being squeezed out and getting no benefit at all.
The increase in the amount of benefit going to the fossil fuel producers is the scarcity rent. It is
important to recognise that they are not entitled to all of it. While the fuels themselves undoubtedly
belong to the countries in which they are found, the rent only exists because people throughout the
world want to use fuel and, without their demand, it would be almost valueless. The rent therefore
belongs to those whose demand has created it – the fuel consumers.
As the proportion of the gross world product that is paid in scarcity rent grows, the way it is shared
between governments, fuel producing companies, major fossil fuel users and ordinary people will
become an increasingly important global issue. The C&S proposal to share the scarcity rent fairly
amongst the world's entire population is likely to provoke a hostile reaction from the fossil fuel
producing companies and countries. And, since oil production is becoming increasingly concentrated
in a few countries (Saudi Arabia and Russia alone are responsible for 18% of world oil exports) and
only three countries – Russia, Iran and Qatar – have 58% of the world's gas reserves, the producers
do have a strong hand particularly as the recent high prices have left many of them flush with funds.
So, if the Global Atmosphere Trust tried to limit their sales and prices in a way that they felt damaged
their interests, they could afford to retaliate by cutting production below the level for which permits
had been issued by the Trust. This would swing the scarcity rent back to them. The producers would
know that the world needed their oil more desperately than they needed the world's money and that
if the Trust responded to their production cuts by reducing the supply of permits, they could cut
production again. It would be a battle which the billions of people around the world the Trust
represented could not win because of the control that the producers have over vital energy supplies.
17
The details continued3
C&S can therefore only be introduced internationally if the Trust can hammer out a rent-sharing
agreement with the producing countries. Part of this could involve the use of the Transition Fund to
ensure that the communities dependent on the production of fossil energy were helped to make the
transition to a post fossil energy economy and were not thrown onto the scrap heap. Another element
might be for the Trust to say, in effect: “In order to withdraw from the fossil fuel economy as quickly
as possible, we are going to reduce our demand for your coal, gas and oil by 3% a year from now
on. However, we don't want your export income to suffer too much so we'll offer you a guaranteed
price which we will increase each year to compensate in part for our smaller purchases. We'll also
pay you a little extra each year to cover your rising production costs and to help the transition to new
energy production arrangements.” The guaranteed priceix would be fixed in purchasing power terms
rather than in any particular currency. If there was any price shortfall in a particular year, the Trust could
honour its price guarantee by withholding from the following year's distribution whatever tonnage of
emissions it needed to sell to raise the money to cover it.
The producers would gain substantially from this arrangement. Not only would they have a fair,
guaranteed income for more years into the future than if the production was uncontrolled but they
would avoid the damage that the oil peak might do to them if the higher prices it brought about
pushed the world economy into a recession. No-one would need to tell them that a recession would
hurt them in two ways – it would cut the fuel prices they received for an indeterminate period while
simultaneously reducing the value of their substantial investments overseas.
3.2.3 Sharing energy use between this generation and later ones.
By limiting fossil fuel use now, C&S conserves stocks, and thus
shares their use between this generation and succeeding ones.
However, it could potentially share energy use in another way too.
If, as seems likely, the Trust decided that it was unsafe to emit any
more greenhouse gases into the atmosphere and that all emissions
from now on needed to be recovered before their full heating effect
had developed, it could hold back an additional amount of each
year's emissions tonnage to auction itself to pay for this.
The funds generated could be used in two ways. One would be to
encourage farming practices that sequestered atmospheric carbon in the soil. It would only take a 10%
increase in the 2,000 billion tonne stock of carbon held in soils and the plants growing on them to
reduce atmospheric carbon dioxide levels from their current level of 387 parts per million to their preindustrial
level of 270 ppmv. A 3.5% increase would get them back down to 350 ppmv, a level which
the US climate scientist James Hansen suggests might be safe.
18
Warming is
accelerating greatly,
especially recently
Dennis Bushnell, Chief Scientist,
NASA Langley Research Center,
January 2007
“
”
The details continued 3
It seems unlikely that it will be possible to measure soil carbon sufficiently accurately to be able to
pay farmers directly for increasing the amount of carbon their soils hold and to penalise them for any
reduction. However, it would be possible to use the funds to alter the price signals farmers face so
that the most profitable forms of farming become the ones which significantly increase the amount
of carbon held.
This soil and biomass sequestration effort would be inadequate to stop the atmospheric concentration
of CO2 increasing for some years until annual emissions had come down and the scale of the farmers'
effort built up. Funds should therefore be put aside to pay for future sequestration efforts. As money
might not hold its value, it might be better invested in renewable energy projects whose output could
be sold in the future to meet the cost of the sequestration when the capacity became available.
By reducing the amount of energy this generation used for current consumption so that the next
generation had more, this technique would, in effect, transfer energy use from this generation to the
next. It is right that such a transfer should be made because, in its absence, this generation would
be leaving the energy cost of cleaning up its environmental mess to its successors. It would be, in
the jargon, externalising an environmental cost. This generation, the polluters, would not be paying
for the clean-up, but the next generation would.
The share out of the scarcity rent under Cap and Share could therefore be as follows.
Stage One: The Global Atmosphere Trust retains some emissions tonnage and auctions it to cover:
1. Its own running costs and those of the national climate protection trusts
2. The Transition Fund
3. The price guarantee to fossil fuel producers
4. Any payments necessary to ensure that the agricultural sector ceases to be the source of
over a quarter of the world's greenhouse gas emissions and, instead, becomes a sink for
the surplus already in the atmosphere.
Stage Two: The national climate protection trusts divide up the emissions tonnage they receive from
the GAT amongst their adult populations. They have the option of earmarking part of each person's
allocation for community-level projects of his or her choice and for a children's fund. Their distribution
could therefore be:
5. Individual allocations
6. Allocations to communities such as tribes in place of individual allocations
7. Allocations to community-level projects as decided by each individual.
8. Allocations to projects intended to benefit the next generation as decided by each individual.
Stage Three: Governments capture part of the scarcity rent by taxing the economic activities generated
by the Stage Two distribution.
19
The details continued3
3.3 The Sale
The Trust would phase the distribution of permits around the world so that the amount it made
available each month reflected the normal energy consumption pattern for that time of year. In some
countries the distribution would probably be on a national holiday, so that everyone could travel to
their local government offices to claim their permits, cash them in by selling them at a nearby bank
and celebrate by spending part of the proceeds. The newspapers and the radio would be full of
stories about the price people should expect to get and whether it was advisable to sell PAPs now
or if the price might go higher later in the year.
In the poorer parts of the world, the annual distribution would be the equivalent of the introduction
of a reliable new crop. It would put money into rural areas and give the people there, possibly for the
first time, a source of income against which they could borrow. While bars and street stalls would do
well on distribution day, during the rest of the year people would improve their houses, develop their
businesses and invest in their children's education. So, while the sale of luxury items in energy-hungry
economies might contract a little because of the higher cost of using fossil fuel with the cost of the
producer's emissions authorisation added onx, the demand for basic materials and simple goods in
poorer countries would grow. This would provide opportunities right up the production chain,
benefiting factories and design shops in rich countries which would make the machinery to go into
the new production plants. In addition, the knowledge that energy prices were going to rise reliably
year after year would speed up the development of renewable energy supplies and energy-saving
technologies, which would also provide opportunities for richer countries' firms.
National climate trusts in countries with weak administrations should be able to handle the permit
distribution without serious problems. When demobilisation payments worth roughly US$2 a week
were given for two years to nearly 93,000 former fighters after Mozambique’s civil war ended in 1992,
everything went well. There was a similarly successful outcome when once-off payments of US$92
were made to 106,000 families who suffered in Mozambique's floods in 2000. In both cases, cheques
were used which had to be cashed by named individuals. According to Joseph Hanlon of the
Development Policy and Practice group of the Open University, Milton Keynesxi, rural people had no
difficulty cashing them and used the money prudently. He adds that the money stimulated the rural
economy and thus had a development impact. Administrative costs were around 5%.
3.4 The Buy
An international trade in PAPs would begin immediately the first ones were distributed. The banks and
post offices that bought them from the public would lodge the paper notes they had bought to their
accounts with their national climate protection trust, which would validate the lodgments by passing
the notes through a barcode reader to check for forgeries. The various climate protection trusts would,
in turn, have accounts with the Global Atmosphere Trust and, if a bank in Country A wished to sell
permits it had lodged to its account with the Country A Climate Protection Trust to a fossil fuel producer
in Country B, the transfer would be exactly the same as it is at present when a bank customer wishes
to send money to someone who has her account with another branch of the same bank.
20
The details continued 3
Only licensed institutions would be permitted to hold climate protection trust accounts. This, and the
fact that the permits were trickled on to the world market throughout the year by having countries
issue them at different times, would lessen the risk of speculators buying up large quantities to
withhold from sale until the price had risen substantially and they were able to sell them at a large
profit. Actions of this type would enable the speculators to capture some of the scarcity rent at the
expense of the people who had originally sold the permits. However, with a constant flow of permits
on to the market, those receiving their permits later would benefit from the higher prices, as would
the original sellers when their next distribution came around.
It would be very important for the Trust to ensure that all permits were used by fossil fuel companies within
a fixed period from the date on which they were issued. This is because, as progressively fewer permits
would be to be issued in successive years, the market would expect their price to go up. If the rate of
price increase expected from year to year was greater than the rate of interest, it would seem attractive
to buy permits now and to hold them indefinitely as an investment. This would push up permit prices in
the current year to close to the discounted level they were expected to reach in several years' time.
These speculation-driven prices could cause an economic crisis. One of the aims of C&S is to signal
to families and investors that energy prices are going to be very much higher in future and they
should make decisions on that basis now so that they are ready for the higher prices when they come.
C&S would be a disaster if those higher prices went into effect right away. Accordingly, the Trust
should design its system so that the permits it issues lose their validity after, say, a year if not presented
by a fossil fuel producer to its inspectors. This would mean that, when the national climate protection
trusts accepted permits from the financial intermediaries, they would have to record the month in
which they were issued. The different months would, in fact, be traded as different commodities.
Possible add-on 5: Global and national monetary reform
What currency should the fossil fuel producers use to pay for the permits they buy from other
countries? The answer is important because, if reserve currencies like the dollar or the euro were
used for the trade, it would be possible for the countries issuing those currencies to receive what
would be, in essence, a discount on all their purchases. At present, the United States receives a
discount of roughly a third on all its imports of goods and services because it pays for them in dollars
and then, when it fails to earn enough dollars from its exports to pay for its imports, borrows the
missing dollars from the countries with which it is doing business. To be sure, it pays interest on the
dollars it borrows but the dollars it pays in interest just increase the amount it owes to the rest of the
world. As no goods or services flow to other countries because of this borrowing, it has at no real
cost. In 2006, the US bought goods and services from the rest of the world worth $2,202.1 billion and
only sent goods and services worth $1,436.8 billion back in return, a shortfall of $765.3 billion or
34.75%xii. Its overall current account deficit in 2006 was a record $856.7 billion, 6.5 percent of its GDP.
It would be quite wrong if the purchase of permits could be carried out in types of money which give
such a massive advantage to powerful nations. To do so would allow countries which have caused
the climate crisis to continue to use energy at preferential prices.
21
The details continued3
To prevent this, Feasta proposes that a new world currency, the ebcu (for emissions backed currency
unit) should be issued by the Global Atmosphere Trust and given to member governments over a
period of years according to the size of their adult populations. This is why we said earlier that
governments would benefit from having as many people as possible on their PAP distribution rolls.
It is suggested that the value of the ebcu should be fixed in relation to the right to emit a tonne of carbon
dioxide. The Trust would announce that, if ever the price of the right to emit rose above one ebcu per
tonne, it would reduce the number of ebcus in circulation. This would be done either by issuing ebcu
bonds or by offering more PAPs for sale and removing the ebcus it received in payment for them from
circulation. (In this case, the Trust would claw back the extra PAPs it had issued by distributing less the
following year.) On the other hand, if the price of the right to emit was less than an ebcu, the Trust could
either cut the tonnage of PAPs it distributed or, if the world economy was in a seriously depressed state,
increase the number of ebcu distributed to governments. By putting a tight upper and lower limit on the
ebcu price of a tonne of CO2 , this mechanism would provide stability for the world economy.
As a condition of getting their ebcus, governments would be required to introduce legislation requiring
their countries' international trading to be done either in ebcus or in one of the currencies of the two
trading partners. Consequently, as ebcus were trickled into the financial system, they would gradually
replace the dollar, the pound, the euro and the other reserve currencies for all international
transactions, not just the trade in the emissions permits.
Governments would also be required to use a proportion of the sum they received each year to pay
off some of their overseas debts. Suppose their debt was denominated in dollars. The governments
would sell their ebcus for dollars and pay back their dollar loans. This would do two things. First, it
would reduce the number of dollars in circulation, making space for the ebcu and preventing the issue
of the new money having an inflationary effect. Second, it would increase the demand for dollars, thus
supporting their value and reducing the risk of the currency collapsing during the period during which
the ebcu was being phased in.
National currencies would have floating exchange rates with the ebcu, determined by supply and
demand. Countries which converted quickly to renewable sources of energy and consequently did not
need to buy so much fossil fuel would do well. Their currencies would be strong and they would find
that imports were cheap. Other countries would find that it was costing them more and more in
national currency terms to buy their imported energy. This would give them a very real incentive to
switch to renewable energy sources too.
The need for inflation
It should be mentioned that C&S, in common with every response to fossil fuel depletion and/or the
climate crisis that makes energy more progressively expensive in relation to labour, needs an
inflationary climate in which to operate if it is to work well. This is because every product we buy and
every service we use has different proportions of energy and labour making up its price. Consequently,
as energy prices rise, the prices of our purchases need to rise by differing amounts to allow the22
The details continued 3
suppliers to cover their increased costs. When a once-off energy price increase takes place, suppliers
put up their prices up to recover their direct energy costs. A little while later, they need to increase
their prices again to pass on the increases that their suppliers passed on to them because to the
increase in their energy costs. And then, later still, a third round of increases comes through, as the
second-round price increases get passed on by the supplier's suppliers. In short, a single energy price
increase leads to the prices of everything else rising by different amounts over a period of time.
Both the oil peak and restrictions on fossil fuel use in response to the threat of climate change are going
to mean that energy prices rise not just once, but more or less continuously over a long period. The
prices of everything else are therefore going to need to be able to adjust continuously too. This will
leave the ebcu as the only fixed point on the monetary horizon and national currencies will lose value
in relation to it as their internal inflations proceed. Countries which are less dependent on fossil fuels
for their export production will experience less inflation and out-compete those which need more.
Before the necessary national level inflations can take place, however, money will have to be injected
into the economies concerned. This raises the questions: Who is to do the injecting and how? The
current money system issues money on the basis of debt. Borrowers pledge a portion of their future
earnings to service and pay off their loans. In other words, borrowing is dependent on future income
streams. The problem with reducing the fossil energy supply is that incomes in many countries will
almost certainly fall as there is a very close link between the level of fossil energy use and gross world
product as graph 4 shows. As a result, people may be unwilling to borrow and banks to lend.
23
World annual growth in oil production,
primary energy and GWP 1950-2006
1950
Jean Laherrere 2007
1960 1970 19901980
year
2000 2010
14
12
10
8
6
4
2
0
-2
-4
-6
oil supply (EIA table 1.4)
primary energy
GWP
Graph 4: The annual percentage growth rate of the world economy has moved closely in step with
the rate of increase in the oil supply and that of total energy production.
The details continued3
If this is the case, then the extra national currency required for an inflation will have to enter the
economy in some other way. There are two options. One is that the government spends it into
circulation. The other is that a national or regional money-creation trust gives it into use. Feasta
prefers the second option as governments have a very bad record when in direct control of the
money supply. If given the choice of taxing enough to balance their budget or printing the money
they need, they have generally preferred to print. This was the reason that inflation once reached
5,000% in Argentina.
A money-creation trust would not be subject to the same pressures. Its sole responsibility would be
to the people who gave its money its value – its users – and who were thus entitled to any gains
from issuing more. The trust's job would be to assess whether any more money was needed in
circulation to enable an adequate amount of trading to go on and to issue it on some defensible basis.
This could be by giving it out to all users equally. Alternatively, the trust could decide to compensate
savers for the erosion of their capital and to give a disproportionate amount of the balance to the poor
on the basis that other groups in society had been protected from the inflation because the value of
their assets had gone up.
The currency-creation trust money would be used for trading rather than saving. Anyone wishing to
save money would buy ebcus in the way that people once bought gold. The savings demand for
ebcus would, in effect, remove them from circulation. This would be a good thing as it would save
the Global AtmosphereTrust from having to reduce the amount of ebcus in circulation itself as the
supply of emissions rights became tighter and tighter. However, if too many ebcus were ever tied up
by savers, the Trust would be able to issue more of them by giving them to governments to spend
and, since much of the ebcu saving would have been carried out in richer countries, this issue, which
would go predominantly to poorer countries since that is where the majority of the world's population
lives, would help narrow the gap between rich and poor.
Whether global monetary reform along these lines can really be considered to be an optional addon
to C&S is open to serious doubt. Feasta regards it as highly desirable if not essential as C&S would
not work nearly as well without it. In addition, it would free poor countries from their debt burden and
give their governments some of the resources they need to adapt to a carbon-negative world.
3.5 The Enforcement
As PAPs would be equivalent to money, many people would undoubtedly spend a lot of time devising
schemes to divert their distribution to their own pockets. Some corruption would inevitably occur
with C&S but the scale of this should be far less than if the emissions rights were given to
governments to sell since, in some countries, very little of the proceeds from those sales could be
expected to trickle down to the general population.
Under C&S, each adult would know that he or she should get a PAP each year and political turmoil
or even riots could result if significant numbers of people failed to receive them. Fraud would be easy
to detect since each PAP would be made out for a specific person and banks would be required to
24
The details continued 3
check the bearer's identity when one was presented for sale. The bank's stamp on the permit would
provide an audit trail and the barcode reader used by the national climate protection trust would be
able to show which bank had lodged it to its account. In addition, the Trust would employ inspectors
to check for irregularities and would have the power to withhold all or part of a country's PAP allocation
following year if any were detected. In such a case it would sell the emissions rights itself and hold
the money in escrow until it was satisfied that any misappropriation had been rectified.
It would also be simple to enforce the requirement that fossil fuel producers buy enough emissions
permits to cover their production as much of the production is concentrated in a very few companies.
This is particularly true of oil and gas production, which is increasingly in the hands of large stateowned
companies. Coal production is less concentrated. China is the world's largest coal producer,
mining an estimated 2,226 million tonnes of hard coal in 2005 to deliver 61% of its primary energy.
Its industry currently consists of hundreds large state-owned mines and thousands of smaller town
and village ones but plans were announced in February 2006 to reduce the fragmentation in the
industry by establishing five or six giant conglomerates in the main coal-producing provinces and
closing down all the small coal mines by 2015. In the US, the world's second biggest producer with
an output of 951 million tonnes in 2005, the consolidation is well advanced. The total number of
mines fell from 4,424 in 1986 to 1,828 mines in 1997 by which time 69% of the tonnage produced
was in the hands of 20 companiesxii. In effect, resource depletion in both countries is concentrating
fossil fuel production into ever fewer hands and making C&S easier to implement.
25
Endnotes
i The actual figure was $103.7 billion according to OECD figures from
http://www.oecd.org/document/8/0,3343,en_2649_34447_40381960_1_1_1_1,00.html
ii Editorial “The rise of the Gulf”, 26th April, 2008
iii http://www.aspo-usa.com/index.php?option=com_content&task=view&id=232&Itemid=91
iv http://www.oilcrisis.com/laherrere/
v http://www.finfacts.com/irelandbusinessnews/publish/article_1011642.shtml Accessed 3/11/2007
vi See www.gci.org. Cap and Share can be regarded as a special case of C&C, one in which there is
immediate convergence on equal per capita entitlements and the entitlements go to the people and not
their governments.
vii Mineral Wealth and Equitable Development, 2006, downloadable from
http://www.sscnet.ucla.edu/polisci/faculty/ross/
viii About 40 percent of world gas reserves are situated in Middle East with Iran holding 14.9 percent, Qatar
14.3, Saudi Arabia 3.8 and the United Arab Emirates 3.4 percent of the world total. Russia has about 29
percent
ix The price guarantee would only apply to oil, and the prices of the other fuels would be left to find their
own level in relation to it. The prices generally move in step with each other.
x It needs to be stressed that the total price of fossil fuel under C&S would only be higher than the price in
an uncontrolled energy market to the extent that the emissions reduction rate set by the Trust was above
the rate at which the output of fossil fuels would have declined without the Trust's intervention.
xi It is Possible to Just Give Money to the Poor? Can be downloaded from
http://www.open.ac.uk/personalpages/j.hanlon/
xii http://www.bea.gov/newsreleases/international/transactions/2007/pdf/trans406.pdf
xiii The U.S. Coal Industry in the 1990's: Low Prices and Record Production by Richard Bonskowski
ftp://ftp.eia.doe.gov/pub/coal/coalfeat.pdf
The advantages of Cap & Share as a global framework
for halting climate change.
● It is a whole-world solution for a whole-world problem.
● It is fair.
● It is cheap to set up and administer.
● It is simple and thus capable of being implemented quickly
● Any target set for fossil fuel emission reductions could be met with certainty.
● The targets would be set by an authority established for that purpose (the Global Atmosphere
Trust) instead of by bargaining between state governments
● The scarcity value of the natural sinks which absorb greenhouse gases would be shared
equally by all humankind. So would the scarcity value of the world's depleting fossil energy
supplies.
● The poor would have an income which automatically increased in step with higher fuel and
food costs. The gap between rich and poor would cease to widen both within countries and
between them. Rural areas that have been left behind would catch up.
● Families would have a new source of annual income which they could use to reduce their
reliance on fossil fuels.
● Emissions rights would be distributed to people, rather than countries. This would make it
much easier for a global climate treaty to be agreed.
● A new world currency would be introduced. This would not only provide a stable basis for
international trade but also support the dollar during the ebcu's introduction period. Highly
indebted poor countries would have their debts cleared.
● Countries facing special problems in meeting the challenge of climate change or in moving
to low levels of fossil energy use would have a fund on which to draw.
● Big new markets would open up for high-technology countries' exports. Mid-tech countries
would also do well meeting basic demands. Farmers would benefit from food higher prices,
from the production of biofuels and from indirect payments to encourage them to increase
the carbon content of their soils.
● Fossil energy producers would get a guaranteed price which increased per unit of energy delivered
as their output fell. Stocks would be conserved for future generations.
The disadvantages of any method of limiting fossil fuel use
● Energy prices will rise in relation to other factors of production A long-run inflation is necessary
to allow the prices of goods and services to adjust to reflect the amount of fossil energy
used in their production and delivery.
● Economic growth will take a different form. Energy-intensive activities will decline, labourintensive
ones will expand. The overall effect on total world income is impossible to calculate
but incomes in the energy-intensive parts of the world can expect to decline in relative terms.
26
Getting Cap and Share adopted internationally 4
It seems unlikely that if it carries on in the way it has in the past, the UNFCCC process will produce
an adequate, workable global climate treaty within the very limited period the world has left to make
the drastic cuts in emissions required to avoid a runaway warming. We say this because any such
treaty would have to contain four elements:
1. An agreement on the maximum rise in the average global temperature that could be permitted
without running a significant risk of triggering a runaway climate change.
2. A consensus on the level of greenhouse gases in the atmosphere that was likely to be consistent
with that temperature rise.
3. An agreement on a way of cutting back emissions so that the target greenhouse gas level was
achieved that was internationally fair. This would have to cover not just emissions from fossil
fuel use but also those from changes in land use and the clearance of forests. These contribute
around 25% to the global emissions total.
4. A method for reducing the current level of atmospheric CO2 which could be put into large-scale
use almost immediately.
The UNFCCC machinery has achieved none of these since the Convention was signed was in 1992.
It has failed even to agree a temperature target. The frequently quoted 2 degrees C above preindustrial
levels figure is an EU target and even that is too high. It would mean the end of the coral
reefs, for example and the possible extinction of 30% of plant and animal species. Rajendra Pachauri,
the chairman of the Intergovernmental Panel on Climate Change, said in 2007 that 1.5 deg. C might
be the upper limit. Others feel that the 0.7 deg. C rise the world has experienced already is too much
in view of the feedbacks that have developed. They point out that even if atmospheric greenhouse
gas concentrations stopped increasing now, another 0.7 deg. C rise can be expected when the full
effects of the gases already released have worked their way through - plus whatever additional rise
the positive feedbacks that the temperature rise itself might generate.
The situation would seem quite hopeless were it not for two things. One is that there are good prospects
that the Irish government will announce that it intends to use C&S to control all Ireland's fossil fuel
emissions not covered by the EU's Emissions Trading System (ETS). Comhar Sustainable Development
Council, an independent but publically-funded body advising government on sustainability policy, has
commissioned reports on the concept from two British consultancies. One of these, AEA Energy and
Environment, has already produced a highly-favourable policy analysis and the other, Cambridge
27
How an Irish pollution permit might look
Getting Cap and Share adopted continued4
Econometrics, is carrying out a modelling exercise comparing the effects of using C&S to reduce
emissions by up to 30% by 2020 with those of using a carbon tax to do the same job. This second
report will be delivered in August 2008, in time to allow the government to consider whether it should
announce the adoption of C&S in its December 2008 budget. If it does, its move would encourage
other EU governments to consider the adoption of C&S too because they all have to meet emissionsreduction
targets set by the European Commission. The use of C&S by most of the 27 EU member states
would make the approach lead candidate for a world role.
Non-EU states could become involved as follows. It is likely that the Irish government will say that it
is going to use C&S initially to control Irish road transport emissions and, if that works well, that the
scheme will be extended to the rest of the non-ETS emissions. That extension would create a moral
problem. If a Global Atmosphere Trust was in operation today, each person in the world would be
issued with permits authorising the release of 4.1 tonnes of CO2. Consequently, if the Irish C&S agency
issued permits for more than that amount, it would be dealing in stolen goods. Any recipients who
sold them would be selling other people's entitlements.
To avoid this, Feasta has suggested that the Irish C&S agency should find a low emissions country
somewhere in the world whose government was prepared to twin with Ireland and introduce C&S
itself. The total emissions-entitlements of the two countries would then be shared by both populations
and firms introducing fossil fuels to either country would be required to assemble enough permits to
cover the emissions from them. The low-emissions country would benefit in two ways. First, its people
would get an income when they sold their permits. Second, its fossil fuel prices would rise, reducing
its fuel imports while encouraging energy-saving and the shift to renewables. It is possible to imagine
the 27 EU states all adopting C&S to control their non EU ETS emissions and then finding partners in
the rest of the world so that the combined per capita emissions did not exceed the average per head
under a global cap. Such a bloc could take in perhaps half the world and its formation could set off
a chain reaction so that almost every nation joined.
The second hopeful development is that two independent but related attempts are being made to
set up the Global Atmosphere Trust. One attempt is being made by a group of Feasta members who
plan to adopt the approach used by a group of Swiss citizens to set up the International Red Cross
150 years ago. The Swiss, tired of appealing to governments to insist that their warring armies treated
civilians and prisoners decently, set up the IRC, called a conference and invited those governments
that bothered to attend to subscribe to the IRC's principles. It worked because it changed the balance
of power. The people involved moved from being supplicants to holders of substantial moral authority
to which governments were expected to conform.
So, instead of appealing to national governments to come up with an adequate response to a global
threat by negotiating with each other, the group proposes that ordinary people should themselves set up
an international body capable of taking effective action. The group points out that the existing system of
negotiation between states grew up in the 18th and 19th Centuries to meet the needs of states and was
not designed to deal with global problems. Instead of an inter-national regime, they believe that what is
needed is a global one whose purpose would be to look after the interests of humanity as a whole.
28
Getting Cap and Share adopted continued 4
The other attempt to set up the GAT is led by Peter Barnes, the originator of the Cap and Dividend concept
mentioned on page 7 and the author of Who Owns the Sky? and Capital 3.0. Barnes' intends that his
organisation, the Earth Atmospheric Trust (see http://www.earthinc.org/earth_atmospheric_trust.php) should:
● Set up a global cap and trade system for all greenhouse gas emissions from all sources.
● Auction off all emission permits – and allow trading of permits.
● Gradually reduce the cap to follow the 450 ppm target (or better). The price of permits will go
up and total revenues will increase as the cap is reduced.
● Deposit the revenues into a trust fund, managed by trustees appointed with long terms and a
mandate to protect the asset (the climate and atmosphere).
● Return a fraction of the revenues to everyone on Earth on a per capita basis. “This amount will
be insignificant to the rich, and much smaller than their per capita contribution to the fund, but
will be enough to lift all the world’s poor out of poverty.”
● Use the remainder of the revenues to enhance and restore the asset. The revenues could be
used to fund renewable energy projects, research and development on renewable energy,
payments for ecosystem services such as carbon sequestration, etc.
Barnes insists that none of the revenue from the sales of the permits should go into the general fund
of any government and that EAT's trustees will be appointed on the basis of their qualifications and
understanding of the purposes and details of the trust, not their political affiliations. The trustees will
be made accountable for their actions and subject to removal if they fail to manage the trust for the
benefit of all current and future people. Several eminent people have given their support to the project
including Robert Constanza, Paul Hawken and David Orr.
The people involved in both projects know each other personally and welcome the prospect of two
organisations working for similar goals, one in Europe, the other in the US. The two bodies can try
different ways of going about things, find out what works and amalgamate later on.
One role the GAT or the EAT could play would be to negotiate the partnership agreements between
high-emissions countries adopting C&S in advance of a global cap and low-emissions countries
prepared to adopt C&S and pool their emissions with the high-emission states so that their poorer
inhabitants would get a supplementary income from their permit sales.
What is certain, however, is that any power the GAT or the EAT gathers to bring about a global C&S or Cap
and Dividend system will only come as a result of massive public support. Neither is about limiting people.
Both are about people limiting the system. The hope is that millions of people will react against being told
by their governments that they, as individuals, are responsible for climate change and that they should
provide the solution by turning off lights, flying less and driving hybrid cars. What particularly annoys many
people is that, at the same time as their governments are telling them to cut back personally, the
governments themselves are expanding airports, building roads and doing everything they can to keep
consumption increasing so that their economies expand. Such people believe that the system is the
problem, not them. They know they can only make significant changes to the way they live after the
system itself has changed and, as the system is not going to change itself, they have to change the system.
GAT and EAT are essentially instruments for harnessing massive public support for systemic change.
29
Final remarks5
It will be extraordinarily hard to get C&S implemented internationally because its use entails massive
changes to way the world economy works and to the power and wealth structures that way of
working has created. However, new problems require new policy mechanisms and, for the first time
in history, the global economy has grown beyond the globe's capacity to support it by providing its
fuel and removing its waste. As a result, the economy's survival, and that of the billions of people who
rely on it, depends on its ability to change. And that, in turn, depends on a few thousand people
finding a way to circumvent the present power structures so they can get the economy into balance
with the natural world. They also have to find ways of holding society together while all that is going
on. Quite a task.
The C&S concept is work in progress. It has been developed over three years by a group of 30-40
people and it now needs the input of many more if it is to become an adequate tool for that task. C&S
not only needs to be developed itself, but other part-solutions need to be found to accompany it. For
example, its use would be a disaster if measures to protect the stocks of carbon in the soil and in the
world's peat bogs and forests were not introduced simultaneously. This is because, by raising fossil fuel
prices, C&S would increase the demand for biofuel. This would lead to the clearance of forests to plant
oil palms, as is already happening in Indonesia, and the clearance could release more carbon into the
atmosphere than the use of the biofuel would save for many decades. In other countries, land would
be switched out of pasture into arable and some of the carbon content of the soil would migrate into
the air. In this and other ways, our good intentions could pave our road to hell. If you would be interested
in helping to prevent this or in developing C&S itself, please get in touch.
30
The necessary revolution will leave us free to make and remake a
human society which does not abolish our national societies but
embraces and completes them. The necessary revolution is a
world revolution. The world revolution is a revolution not in the
streets but in our minds.
Philip Allott, Professor of International Public Law at Cambridge University, in his 2002 book The Health
of Nations: Society and Law beyond the State which inspired the Global Atmosphere Trust.
”
“
The greenhouse gas levels in the air now
pose an unacceptably high risk of damage to
nature and an unacceptably high risk of
triggering runaway heating. The only way to
bring the risk down to an acceptable level is
to cut greenhouse gas emissions to zero, to
take the excess CO2 out of the air as fast as
possible, and to find environmentally
acceptable ways to cool the planet.
The transformation of the economy from a
business-as-usual structure to a sustaining
structure must be physically accomplished
within 10 years.
Philip Sutton, Greenleap Strategic Institute,
Australia, December 2006.
“
”
When the American cyclist Floyd Landis was accused of taking a performanceenhancing
drug after winning the 2006 Tour de France, his supporters pointed
out that his performance had not been exceptional. He had, they said,
delivered an energy output of only 280 watts for the five hours of his winning
ride whereas he had averaged 320 watts for six hours in training.
Drug-assisted or not, there can be no doubt that Landis is a superb athlete. A
normally-fit man would be doing well to produce 75 watts per hour or around
3 kWh in the course of a 40-hour working week. As electricity costs 16.5 cents
per kWh including VAT in Ireland, this means that the energy value of a week
of hard human labour is about 50 cents, or just over 1.25 cents per hour. A
litre of petrol has an energy content of 8.9 kWh, and is therefore equivalent
to three weeks' manual work. Yet it was priced at only around €1.23 in April
2008 including lots of duty and tax,
This explains why the sort of energy benefit sharing system proposed in this
paper is necessary. Anyone who has access to fossil energy and uses it to
boost their productivity should always be able to earn a bigger income than
someone whose earnings are entirely dependent on their unaided muscle
power. As a result, the fossil energy-user will be able to earn enough to keep
buying fuel as the price goes higher while the manual labourer will find it
increasingly hard to afford kerosene for his oil lamp and, because of its energy
content, food for his table. The labourer may be driven from the market
altogether as the global rich-poor polarisation becomes extreme.
This paper is dedicated to Dr. Will Howard, 1951-2008, who helped develop its ideas.
climate@feasta.org | www.feasta.org
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Tel. + (353) (01) 405 3615The Foundation for the Economics of Sustainability